What Economic Challenges Have an Impact on Higher Education and How They Relate to the Institution

2-2 Final Project Milestone One

Jennifer McGraw

Southern New Hampshire University

2-2 Final Project Milestone One

The purpose of this paper is to analyze the current economic landscape and the impact it has on the institution.  I will discuss what economic challenges have an impact on higher education and how they relate to the institution.

Current Economic Challenges

In 2008, the recession hit the United States hurting the economy.  This caused institutions to lose funds due to investments losing money from the recession (Geiger, n.d.).  Institutions had to raise the costs of tuition to offset the loss of funding.  

State Funding

        Since the recession, states are spending far less on funding for higher education.  “States are spending $2,353 or 28 percent less per student on higher education, nationwide in the current 2013 fiscal year than they did in 2008, when the recession hit” (Oliff et al., 2013, para. 1).  There are currently only 2 states that are not spending less than they did prior to the recession and that is North Dakota and Wyoming.  In the five years after the recession hit all states have had drastic cuts to their funding.  “Eleven states have cut funding by more than one-third per student, and two states- Arizona and New Hampshire- have cut their higher education spending in half” (Oliff et al., 2013, para. 1).

        These cuts to funding have a drastic affect on budgeting in higher education since these state funds “provide 53 percent of the revenue that can be used to support institution at these schools” (Oliff et al., 2013, para. 2).  A decrease of this funding means that the institutions have to cut budgets or raise tuition costs to offset the loss.  

        Cutting budgets could potentially have a negative effect on the education. “Public colleges and universities have cut faculty positions, eliminated course offerings, closed campuses, shut down computer labs, and reduced library services, among other cuts” (Oliff et al., 2013, para. 4).  Eliminating faculty members may lead to eliminating course offerings and merging departments.  This may cause institutions to be less effective due to lack of support from both faculty and staff for the students.  Students may see this as a negative and choose to not attend an institution.  

        Institutions may opt to increase tuition to offset the decrease in state funding, though some states restrict how much an institution can increase tuition.  “Annual published tuition at four-year public schools has grown by $1,850, or 27 percent, since 2007-2008 school year, after adjusting for inflation” (Oliff et al., 2013, para. 17).  The raise in tuition has caused students to pay more out of pocket even after federal funding has been applied.  At Washburn University, we have seen how students now are taking out more private loans than previous as well as parents taking out PLUS loans due to the increase in tuition.  This affects the affordability of education as well as an increase in student debt.  

Student Debt Management

        The increase in student debt has become a fast-growing issue in higher education.  Institutions are beginning to implement financial literacy programs.  

“As college costs continue to rise well above the rate of inflation, students are relying heavily on student loans to finance their education.  Estimated at $1 trillion by the Consumer Financial Protection Bureau, student loan debt has grown to twice what it was in 2007 and now surpasses revolving credit debt such as car loans and credit cards and comprises the second largest form of consumer debt behind mortgages” (Alban et al., 2014, para. 1).

“Adding to this financial stress is the fact that job prospects, while improving, are still challenging for many graduates.  The unemployment rate of recent college graduates with a bachelor’s degree is almost 13% according to a 2013 release by the U.S. Department of Labor, Bureau of Labor Statistics” (Alban et al., 2014, para. 2).   This also has an effect on the cohort default rate.  This can cause an issue because if an institution’s default rate becomes to high it runs a risk of no longer being eligible to provide federal funding such as loans and the Pell grant.  If a school exceeds a default rate it the requires the school to adjust how it disburses aid until the school is below the default rate again for three consecutive years.  What this means for students is that new, first time borrowers must wait 30 days after the start of classes before funds can be disbursed.  This can cause issues for students because they are unable to use those funds to pay their balance or other educated related expenses.  Educating students on financial literacy in extremely important in helping to prevent loans being in default.  This begins with high school students as well as with current college students (Cohort Default Rate Guide, 2017).  

Gainful Employment

“Generally, in order to be eligible for funding under the Higher Education Act Title IV student assistance programs, an educational program must lead to a degree at a non-profit or public institution or it must prepare students for "gainful employment in a recognized occupation."  Therefore, with very few exceptions, any non-degree program offered by non-profit or public institutions and all educational programs offered at for-profit institutions must lead to gainful employment” (Federal Student Aid, para. 1).

The focus is on the debt to earning ratios.  Programs must meet certain requirements to maintain eligibility for federal aid.  Programs not meeting the requirements to receive federal funding may mean a decrease in enrollment for those programs which may lead to budget cuts or even elimination of those programs.  The institution need to make room in the budget to research the current job market for the program(s) to ensure they are meeting the requirements for gainful-employment.

Undocumented and DACA Students